Thursday, April 26, 2012

Is Mexico Ready to Emerge from Its Self-Induced Energy Slump?

Mexico's energy production has been steadily falling, despite massive new discoveries of hydrocarbons. In order to develop its assets and allow its people to profit from its natural resources, Mexico must step back from its self-imposed energy isolationism. The curse of oil nationalism has made Mexico corrupt and lazy. The country needs outside investment and expertise in a very bad way.

For the first time in 74 years, Mexico may allow private investment in its oil and gas, the third-largest reserves in Latin America.

...Selling shares in the largest oil supplier to the U.S. will open a Mexican industry experiencing an eighth year of declining output, hurt by faltering investment and lack of technology and experience for the deepest offshore wells. The cash can fund Gulf of Mexico and shale gas production using techniques Brazil and the U.S. employed to revolutionize their energy markets.

“The taboo has been broken” on private investment, Pemex board member Hector Moreira said in an interview. “People talking about private stakes -- it’s a first step. And it’s a step that’s not prompting a negative reaction from the public.”

...Energy Minister Jordy Herrera said last month that the company’s budget to tackle all the challenges is “notoriously insufficient.” Pemex needs to change the law to get more funds and create a “model similar to Petrobras (PBR) (PBR) or whatever we decide,” he said, referring to the state-backed oil company in Brazil.

While Pemex wanted to invest more than $30 billion this year, the federal government cut its plans to about $23 billion, and even those funds are not available at the speed or with the flexibility that the company requires. Pemex paid almost 60 percent of its revenue in taxes, cash used to finance a third of the nation’s public budget. _BusinessWeek

Mexico's corrupt and inept national energy system has prohibited outside investment for almost 75 years. And Mexico has paid the price in lost opportunity and in the national laziness that infests all governments and societies that become overly dependent upon a nationalised industry such as oil.